Truth and Lies of Social Media ROI

 

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[Originally posted on the Huffington Post.]

ROI (return on investment) is probably the most commonly used and most misunderstood word in social media marketing today. It seems to have emerged as the go-to buzzword that social media marketers throw at the finance department when they want to relate to them. But two problems exist:

  1. Given the textbook definition of ROI—net profits divided by costs—it is actually impossible to measure exactly the ROI of your social media efforts, because the net profits variable cannot be measured; there are too many confounding variables that contribute to the decision to purchase. Anyone who claims otherwise is BS-ing you. In fact, as reported recently on Business Insider, companies are starting to drop ROI as a metric for success on social (including SocialProvidence, the social media startup I run with my business partner, Mike Cunningham).
  2. Whenever someone says he or she will measure the ROI of your social media efforts, they are setting themselves up to overpromise and under-deliver. The entire industry has thus gained a bad rep for not holding itself accountable to business objectives and, specifically, sales (only 26 percent of marketersagree that they are able to measure their social activities). This is absolutely untrue.

Social media is extraordinary because it produces vast amounts of widely available data (more than 500 million tweets per day, 4.75 billion Facebook shares per day). Through smart use of this data, social media is actually positioned to be the most measurable marketing effort in your business’ arsenal.

Tying social media marketing to sales begins with an understanding of where social fits in the sales process: In the journey from lead generation to prospects to customer conversion and retention, what is the role of social? As Nichole Kelly, author of How to Measure Social Media and CEO of Social Media Explorer, pointed out in an interview with Social Media Examiner, there are executives who have “misaligned expectations of where social media fits into the sales funnel.”

Social media is powerful at two points during the sales process: the beginning (lead generation) and the end (customer retention):

  • Lead generation. Social media generates soft leads. A full 89 percent of marketers in 2013 agree that the top benefit of social media marketing is increased exposure. Social media is a powerful tool to connect you to new audiences, and you can easily measure whether the reader of your 140-character blurb is a lead: Insert a link to a landing page and measure the click-thru rate. Every click is a lead, and from this figure you can calculate cost per lead (CPL).
  • Customer retention. The rapidly growing popularity of social media has cornered companies into listening to their customers. Turning this trend on its head, social media has made it uniquely simple for companies to address the concerns of their customers in real time. A good use of social media can turn it from a cause for concern for the PR team to a formidable customer-retention tool.

So how do we convert the lead to a customer? On this, I happen to agree with Kelly, although she is high in the rankings of advocates for the infamous ROI. She believes that subscription-based email marketing is the tool that can close the considerable gap between social media leads and sales. Channel traffic to a landing page and prompt users to subscribe to a mailing list. The number of emails acquired through social is quantifiable, and it’s therefore possible to tie social media efforts to hard leads.

Social media can produce highly quantifiable results in marketing efforts. ROI is not an applicable performance indicator; by measuring lead generation, the impact of social on sales can be realistically quantified. A successful social strategy is part of an integrated pathway from lead generation to sales. Only within this framework can the power of social be fully unleashed.

[photo: creativecommons.org/cambodia4kidsorg]

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